Insured vs uninsured mortgages: high-ratio vs conventional

The short answer

An insured (high-ratio) mortgage is one with less than 20% down. It must carry mortgage default insurance from CMHC, Sagen or Canada Guaranty, which protects the lender, not you, and you pay the premium. An uninsured (conventional) mortgage has 20% or more down and no premium.

On a $700,000 home, putting 15% down means an insured mortgage with a $16,660 premium added to the loan. Putting 20% down ($35,000 more) avoids the premium entirely.

Definitions: high-ratio, conventional, insured, uninsured

• Loan-to-value (LTV): the mortgage divided by the home's value. 20% down is an LTV of 80%.
• High-ratio or insured: LTV above 80%. Federally regulated lenders are required to insure these loans when they are for buying or improving a home.
• Conventional or uninsured: LTV of 80% or less. The lender carries the risk itself.

The words are used loosely. "Insured" here means default insurance on the loan, which is different from mortgage life or disability insurance a lender may offer you.

Side by side

The stress test is the same

A common myth is that putting 20% down lets you skip the stress test. It doesn't. The Department of Finance sets the test for insured mortgages and OSFI sets it for uninsured mortgages at federally regulated lenders, and both use the same formula: the greater of your contract rate plus 2 points or 5.25%. At 4.12% you qualify at 6.12% either way. See the stress test explained.

What changes at 20% down is the size of the loan. Less borrowing and no premium means a lower qualifying payment, so the same income goes further.

Example: 10%, 15% and 20% down on $700,000

Ontario, 4.12%, 25 years, no other debts. The minimum down payment on this price is $45,000.

Moving from 15% to 20% down takes $35,000 more cash, but the mortgage falls by $51,660 because the premium disappears too. The payment drops by $275 a month and the income needed by $10,200. This example uses the same rate for all three; in practice the insured options are often offered a lower rate, which narrows the gap.

What the premium really costs

Because the premium is added to the mortgage, you pay interest on it for as long as you carry the loan. At 15% down on this home, the $16,660 premium would cost about $9,957 in interest over 25 years at the same rate. Add the $1,333 of Ontario sales tax paid at closing and the full cost of insurance is about $27,949. In Quebec and Saskatchewan the sales tax on the premium also applies; in other provinces it doesn't.

The premium rate also steps down as your down payment grows. On this home, going from 10% to 15% down lowers the rate from 3.10% to 2.80%, so every extra dollar of down payment cuts the premium as well as the loan. The CMHC insurance calculator shows where each step falls.

Why insured mortgages often get lower rates

It seems backwards: the borrower with the smaller down payment is often offered the better rate. The reason is that the default insurance moves the risk of loss from the lender to the insurer. A lender holding an insured loan has less to lose, and it is commonly observed that lenders price insured mortgages lower than similar uninsured ones.

So compare the whole cost, not just the rate. A lower rate on a larger, insured loan can still cost more in total than a slightly higher rate on a smaller loan with no premium. Use the CMHC insurance calculator to see the premium for your numbers.

When a mortgage can't be insured

• Price of $1,500,000 or more: insured mortgages are only available below the cap, so at or above it you need at least 20% down.
• Refinances: high-ratio insurance is built for buying a home. Taking equity out of a home you already own is generally done with an uninsured mortgage, so lenders generally keep it within 80% of the home's value.
• Longer amortizations for repeat buyers: if you aren't a first-time buyer and aren't buying a new build, an insured mortgage is limited to 25 years.
• Other eligibility rules: insurers also look at credit, debt ratios and the property. Homes with three or four units have higher minimum down payments.

After closing: renewals, switches and lender limits

Insured borrowers who switch lenders at renewal don't have to requalify under the stress test. Since November 21, 2024, OSFI also no longer prescribes the stress test for uninsured borrowers who switch to another federally regulated lender at renewal with no increase in the amount or amortization.

OSFI also limits how much of each lender's new uninsured lending can go to loans above 4.5 times the borrower's income. That is a limit on the lender's overall portfolio, not a cap on any one borrower, so it does not set a maximum for you.

Watch the line at 20%

The premium applies to the whole loan, not just the part above 80%. With 19% down ($133,000) on this home, the premium would be $15,876 at 2.80%. Another $7,000 of down payment removes it completely. If you are close to 20%, a gift from family, a slightly lower offer or a few more months of saving can be worth more than it looks.

Which one should you aim for?

1. Work out your minimum down payment with the down payment calculator.
2. Price the premium for your down payment, and remember the sales tax on it in Ontario, Quebec and Saskatchewan.
3. Ask lenders for rates on both an insured and an uninsured mortgage if you are close to 20%.
4. Compare total cost over your term, not only the monthly payment, and keep an emergency fund after closing.
5. If you are shopping at or above $1,500,000, plan for at least 20% down from the start, because insurance is not an option at that price.

For premium details by down payment, read CMHC mortgage insurance.